The Nixon campaign in 1968, and the Nixon White House after that, had two enemies: the antiwar Left, and black people. You understand what I’m saying? We knew we couldn’t make it illegal to be either against the war or black. But by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalizing both heavily, we could disrupt those communities. We could arrest their leaders, raid their homes, break up their meetings, and vilify them night after night on the evening news. Did we know we were lying about the drugs? Of course we did.

"The word 'redistribution' implies that there is a distribution that is default, and that we redistribute when we modify the distribution away from it. This, of course, is wrong. There is no default distribution. All distributions are the consequence of any number of institutional design choices, none of which are commanded by the fabric of the universe. In the United States, we have constructed and enforce institutions of private property ownership and contract enforcement. Those institutions generate very different end distributions than we would see if they did not exist. But they do not have to exist by logical necessity, nor do they constitute the default form of economic institutions."

12 November 2013

A large part of the motivation of the Affordable Care Act is to provide insurance to those with pre-existing conditions. Under the law, insurance is offered to everyone at a price based on overall community risk, not the risk estimated by the insurance company based on a person's particular characteristics. That has been deemed "fair" by advocates of the law.

I wonder whether advocates of this view are concerned with other insurance markets. Teenage drivers pay a lot more for auto insurance. The old pay a lot more for life insurance. Life insurance companies require health screening before granting a policy. Is this a problem, or the natural and desirable functioning of markets?

In the law, having children has been deemed a pre-existing condition, although it is not quite described as such. Everyone is now expected to buy insurance to pay for pregnancy and maternity care, even those who never intend to have children. The goal is to spread the risk of childbirth among the larger community.

But having children is more a choice than a random act of nature. People who drive a new Porsche pay more for car insurance than those who drive an old Chevy. We consider that fair because which car you drive is a choice. Why isn't having children viewed in the same way?

I don't know the answer to these questions. But it does seem that fairness in health insurance pricing is being viewed very differently than fairness in pricing other types of insurance. I wonder why.

Greg Mankiw asks "Is Community rating fair?" His contention seems to be that the market has deemed that people with different health risks should pay more for health insurance, much in the way that the market has deemed that people who are statistically more likely to be involved in auto accidents should pay pay more for car insurance and that people who are statistically more likely to die sooner should pay more for life insurance. By way of example, he cites teen drivers (higher car insurance premiums) and old people (higher life insurance premiums, if they can get a policy at all).

Mankiw's complaint is specifically that pregnancy is, for the purposes of the ACA, a "pre-existing condition," the cost of which should not be spread among all of the insured, because pregnancy is a choice. Leaving aside the fact that the degree to which pregnancy is a choice is correlated with, and proportional to, socioeconomic status, Mankiw takes a logical leap that goes something like this:

1. Pregnancy is a choice.2. Pregnancy is a pre-existing condition.3. Community rating spreads costs for pre-existing conditions across all insured.4. Community rating is unfair!!

It should be noted that community rating is primarily meant to remove the penalty of a lifetime of burdensome costs for those of us unlucky enough to be born with genetic conditions, to contract less-than-curable lifetime ailments like Lyme disease, and other catastrophic health scenarios that currently send people down a road toward something that most closely resembles serfdom. It should also be noted that community rating is very similar to the way in which employer-based health insurance plans spread risk, and have done so for decades. It's not like we're landing on Neptune here. Perhaps pregnancy is different in some fundamental way from the sorts of conditions I describe. Then again, maybe it's not. This is a relatively simple technocratic question, not the grand philosophical debate over which Mankiw wastes so much hand-wringing. Perhaps, in a sane political environment, we'd be able to discuss this question and others like it calmly and reach a practical solution.

So, Professor Mankiw, since you asked, yes, fairness is being treated differently here. And further, since you also asked, it's because This Thing isn't like Those Things. And we can't have a rational conversation about this stuff at the legislative level because your political masters can't talk about this stuff without bringing up death panels and the Fugitive Slave Act.

09 November 2013

08 November 2013

"The advance of behavioral economics is not fundamentally in conflict with mathematical economics, as some seem to think, though it may well be in conflict with some currently fashionable mathematical economic models."

"Crucially, as Lafer emphasizes, this isn’t about what we colloquially refer to as 'conservative values.' Rather than rolling back the state, tea party Republicans are calling for extensive observation and disciplining of unemployed people.

"Tennessee conservatives and business interests, for instance, are pushing 'the Unemployment Insurance Accountability Act of 2012 [which] would add scenarios that disqualify a worker from receiving unemployment in the first place [and] call for audits of 1,000 claimants weekly.' So much for smaller government and more privacy.

"And for all the conservative talk about making programs as local as possible, what is often referred to as 'subsidiarity' or 'devolution,' that principle is ignored when it comes to repealing labor protections. Many conservative states have pushed laws designed to override localities that seek to create or increase their minimum wages, prevailing wages, living wages or mandatory sick days. Given that many states have big cities where more extensive labor protections exist, this matters for many people."